Tax Law and Employment Law FAQs

San Jose Tax Lawyer Answering Frequently Asked Questions

Q: Why should I hire an attorney instead of just using my CPA for help with an audit?

A: Government auditors are trained concerning the nuances of applying the tax laws. A tax attorney has the skills and expertise to apply the laws most beneficially for your situation. Additionally, a CPA's credibility is already in question if the tax return he or she prepared is being audited and the CPA may be defending his or her work. A tax attorney is only defending YOU and may capitalize on a CPA's error or use a CPA's misadvice to reduce penalties. A tax attorney provides a "fresh start" in the eyes of an auditor. That is not to say that the services of a qualified CPA are not useful during an audit, and I often work with CPAs to get the most beneficial result for taxpayers.

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Q: I have heard about an amnesty program for people who did not report their foreign bank accounts. Can I get this amnesty?

A: In almost all cases, the answer is "yes." However, the question is actually which rules apply to your situation and what form of amnesty will be available for you. I have the skills and expertise to assess your facts and guide you to the best available result. Offshore reporting is a hot-button issue with the IRS.

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Q: I just inherited some money from a relative in a foreign country. Do I have to tell the IRS? My relative was not a U.S. citizen.

A: If the inheritance or gift from a foreigner is worth $100,000 USD or more, failure to report to the IRS may have severe financial penalties. If you have foreign income resulting from an inheritance, employment, investment, or rent of real property, it might be beneficial to review your situation during a consultation so I can advise you as to correct reporting and so you do not become entangled with the IRS on this issue. Offshore reporting is a hot-button issue with the IRS.

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Q: I have heard that the IRS will accept pennies on the dollar using an offer in compromise. Can you do one of these for me? What percent can you save me?

A: Offers-in-Compromise, which are commonly called "OIC," have evolved over time, but the reality is that they have always been based on what can be collected and were never based on any percentage formula. I have 30 years experience in determining whether an OIC is properly suited to resolving your tax problems and if so what an appropriate offer may be. Percentages can only be calculated after the fact. Anyone who talks about a percentage or uses the phrase "pennies on the dollar" is probably only making a sales pitch.

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Q: The IRS is garnishing my paycheck and I have nothing left. I need to get this stopped. Can you help me?

A: Garnishments can be halted and wage levies can be released. This is true for both state and federal taxes. I have been able to accomplish this efficiently for many taxpayers. My experience has frequently shown that the greater the need (hardship), the more efficient the relief.

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Q: I have not filed a tax return for a few years and the Government is threatening to levy my accounts. But I did not make enough money in those years to be required to file a tax return. What can I do?

A: This frequently occurs with the California Franchise Tax Board (FTB) but also occurs with the IRS. Two things need to be done: Tax returns need to be filed to confirm to the Government that no taxes are due and the collection department or revenue officer working your account needs to be stopped. Although I do not prepare income tax returns, I work with all tax return preparers and have frequently been able to stop inappropriate collection efforts. If you need a referral to a qualified CPA to assist in the preparation of tax returns, I frequently make referrals for current clients.

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Q: What is the difference between a corporation and a limited liability company (LLC)?

A: This is a short and simple question; the answer is neither. At the top level, the differences are technical structural differences and tax reporting and accounting differences. Although both entities can provide liability protection for the owner, the decision to use corporate or LLC form will depend on many facts, preferences, and intentions. During an in-office consultation I can review the two types of entities to help you make the best selection for your business needs.

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Q: California is so expensive for businesses, should I form my business in Nevada or Delaware or somewhere else to save some money?

A: If the business is going to be conducted within the State of California, the business will need to "qualify/register" with the California Secretary of State to do business in California... regardless of the location of the initial formation. A business formed outside California could end up having a multiple of filing obligations instead of just one. If the entity does not have offices or assets in California and does not sell to customers within California, I can assist you in looking at alternative states for formation. The State of California is currently battling with out-of-state entities over the "nexus" issue of whether there is any link to California sufficient to claim taxes to be due, and this is a hot-button issue with the Franchise Tax Board (FTB).

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Q: I have always given my part-time workers 1099s and let them deal with their own taxes. Now the Employment Development Department (EDD) is auditing my business and saying they are not independent contractors but are employees and charging me a lot of penalties. That is crazy. They only work for me part time. What can I do?

A: The distinction between an employee and an independent contractor is not controlled by part-time or full-time status. The EDD is aggressively pursuing employers on the issue of worker misclassification. If you are unclear about whether your workers are independent contractors or employees or if you are currently being pursued by the EDD, I have many years experience in working on EDD audits and can assist you in analyzing your situation, minimizing the impact, and reclassifying the workers if necessary. In addition, I can guide you through a little-known IRS program to minimize the financial damage of reclassification, and I have successfully shepherded a number of clients through this procedure all to their significant benefit.

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Q: I owe a lot of taxes. I am worried that I will go to jail. What can I do?

A: The IRS is initially focused on the collection of taxes rather than the imprisonment of criminals, and although the IRS Criminal Investigation Unit may refer a matter to the Justice Department, I have been 100% successful in resolving all of my clients' matters on a purely civil basis without criminal prosecutions.

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Q: I owe a lot of taxes. I am worried that the IRS will take my house. What can I do?

A: A taxpayer's home is not generally an initial target, although a home with a lot of equity may provide a taxpayer with a source for paying off tax debts. There are actually only 5 tools for resolution of tax problems, and a combination of those "tools" is often used to complete the task. The 5 resolution tools are the following: (1) pay the tax over time using an installment agreement (IA); (2) pay the reasonable collection potential through an offer in compromise (OIC); (3) utilize a bankruptcy for dischargeable tax liabilities (note: not all tax liabilities are dischargeable); (4) be classified as "currently not collectible" (note: the Government views this classification as temporary and subject to periodic review); (5) obtain funds (sell a home; refinance a home; borrow funds from family/friends) to fully pay the tax. I have 30 years experience helping taxpayers resolve their tax problems using the five tools described.

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Q: I owe a lot of taxes. How can I protect my spouse?

A: Spousal protection may be available through innocent spouse relief, separation of liability relief, or equitable relief. Until recently, claims for relief were unavailable later than two years after the IRS's first attempt to collect the tax. This barrier has now been removed, and any spousal tax liability can be considered if the requirements for relief are present. The fundamental requirements are that the spouse requesting relief did not have knowledge or benefit. A claim for relief of one spouse may significantly alter how to resolve the liability for the other spouse. In working with taxpayers, my analyses always take this into consideration.

If you need assistance with any small business or individual tax issue, contact John D. Teter Law Offices by calling 408-866-1810. We serve clients in San Jose, San Francisco, Fremont, Los Gatos, Santa Clara County, and throughout the Bay Area.